Business Law: Chapter 10 (Contract Performance, Breach, & Remedies) – Flashcards

If a mistake concerns the market value or quality of the object of the contract, general rule is that contract is enforceable by either party (presumed that value is variable)

When an innocent party is deceptively induced to enter into a contract. The contract normally can be avoided because that party has not voluntarily consented to its terms. Innocent party can either rescind the contract (voidable) or enforce the contract and seek damages.

Misrepresentation by words or action of a material fact (can also involve concealment). Intent to deceive the innocent party. The innocent party must justifiably rely on the misrepresentation. To collect damages, a party must have been harmed as a result of the misrepresentation.

Arises from relationships in which one party can greatly influence another party, thus overcoming that party's free will. Thus, contract lacks voluntary consent and is voidable. Usually in Fiduciary Relationships (physician-patient, attorney-client, parent-child, husband-wife, guardian-ward).

Agreement to the terms of a contract is not voluntary if one of the parties is forced into the agreement (examples include blackmail and extortion). Contract voidable. Threatened act must be wrongful or illegal. Threat to sue someone ordinarily does not constitute duress.

must be satisfied before a party's performance can be required. If condition not met, performance is discharged. Otherwise only way to discharge contract is by performing.

Parties perform exactly as agreed, or 'perfect'; all conditions satisfied. Party in GOOD FAITH performs substantially all of the terms can enforce the contract. Performance confers most of the benefits promised and must not vary greatly from what was promised. Minor variance easily remedied by compensation (monetary damages).

is the nonperformance of a contractual duty.

when performance is not substantial. The non-breaching party is excused from performance of contractual duties and can sue the breaching party for damages.

allows the nonbreaching party's duty for performance to be suspended until the breach has been remedied, but the duty to perform is not excused and the non-breaching party must resume its performance of the contractual obligations once the minor breach has been cured.

before either party has a duty to perform, one party refuses to carry out his or her contractual obligation. Treated as a material breach of the contract, and the non-breaching party may sue for damages immediately. (Rationale: (i) the nonbreaching party should not be required to remain ready and willing to perform when the other party has already repudiated, and (ii) nonbreaching party should have an opportunity to seek similar contract)

if no time is stated in contract, a reasonable time is implied (a delay in performance will not destroy the performing party's right to payment). If time is stated to be "of the essence" the parties must be perform within the stated time period (treated as a condition).

the process by which a contract is cancelled or terminated and the parties are returned to the positions they occupied prior to forming the contract.

requires that the parties make another agreement, oral or written. If one party has performed, agreement to rescind may require additional consideration.

both parties agree to substitute a new third party for one of the original parties to the contract. Requirements: (i) previous valid obligation, (ii) agreement by all parties to a new valid contract, and (iii) extinguishment of old obligation (discharge of the prior party).

-Material Alteration of the Contract: an innocent party is discharged when the other party has materially altered a written contract without consent. -Statutes of Limitations: restrict the time period in which a party can sue on a particular cause of action. -Bankruptcy: generally bars enforcement of non-exempt transactions; appointment of BK trustee. -Impossibility of Performance and Commercial Impracticability/Unfeasibility ("Force Majeure"): --Contractual breach is excused if supervening event was not reasonably foreseeable; performance may only be temporarily suspended. --Death or incapacitation in personal services contract.

-Compensatory/Direct Damages (covers direct losses and costs). -Incidental Damages (covers costs "incidental to the breach such as fees associated with the storage and handling of defective products). -Consequential/Indirect Damages (covers indirect and foreseeable losses). -Nominal Damages ('small damages awarded to recognize wrongdoing when no monetary loss in shown).

designed to compensate nonbreaching party for "loss of the bargain". Standard measures of compensatory damages: (i) difference between value of promised performance and value of the actual performance, or (ii) difference between the contract price and the market price.

foreseeable indirect losses caused by special circumstances beyond the contract itself: -Lost profits -Lost business opportunity or production -Increased costs of operation (downtime)

when breach of contract occurs, the innocent injured party is held to a duty to mitigate, or reduce, the damages that he or she suffers. Duty owed depends on the nature of the contract (example: some states require a landlord to use reasonable means to find a new tenant if a tenant abandons premises and fails to pay rent).

damage provisions in contracts specify a certain dollar amount agreed by the parties to be paid in the event of a future default or breach of contract (especially in situations where damages would be difficult or impossible to calculate). (Example: In the event supplier fails to deliver the product on the specified delivery date, supplier shall pay purchaser $500 for each day or delay up a maximum of $5,000").

specific performance, rescission and restitution, and reformation

both parties must return goods, property or funds previously conveyed.

equitable remedy that permits a contract to be reformed, or rewritten by the court, to reflect the parties' true intentions. Available if fraud or mutual mistake is present; clerical error.

involves the knowing relinquishment of a legal right (i.e., the right to require satisfactory and full performance). The non-breaching party accepts defective performance of contract. Party waiving the breach cannot take any later action of it; the waiver erases the past breach

enforceable if properly drafted and not unconscionable. UCC allows sales contracts to limit remedies (e.g. breach of warranty).